Oct. 11 (Bloomberg) -- Russia’s economy may contract by a “very serious” 7.5 percent this year as dependence on energy exports left the country more vulnerable to the global financial crisis than expected, President Dmitry Medvedev said.

“I must admit that we sunk below our lowest expectations,” Medvedev said in an interview to be broadcast today at 9 p.m. Moscow time on state television. “The real damage to our economy was far greater than anything predicted by ourselves, the World Bank, and other expert organizations.”

Initial forecasts indicated the economy may drop between 3 percent and 3.5 percent this year, Medvedev told Channel One. The government predicted last month that the economy will shrink 8.5 percent this year, the most in a decade. Russia will return to growth in 2010, the government forecast in a report published on its Web site.

Unemployment remains “very high,” making it “a clear challenge for the president, the Cabinet and other government authorities,” Medvedev said.

The jobless rate fell to 7.8 percent in August, lower than previously estimated, from 8.3 percent in July on rising seasonal demand for agriculture and construction. The number of unemployed was 6 million, the Federal Statistics Service said.

Emergency measures helped avoid the worst-possible scenarios for unemployment, the banking and financial sectors, Medvedev said.

‘Rampant Inflation’

Russia aims to bring down inflation, which was “rampant in this country,” to a range between 5 percent and 7 percent or less, according to the president.

“Then we will be able to lend at normal rates,” he said. “Then our citizens will be able to obtain mortgages and consumer loans at reasonable rates.”

Russia’s annual inflation rate fell to 10.7 percent last month from 11.6 percent in August as the cost of food slipped and consumer demand declined, according to the Federal Statistics Service. Inflation has averaged more than 14 percent a year since 1998.

Russia’s goal is “to achieve a balanced budget or a budget with a minimal deficit within a year,” Medvedev said in the televised comments. “All the government’s efforts and decisions should be directed toward this end.”

Deficit Goals

Russia’s budget deficit held steady at 4.7 percent of gross domestic product in the year through September as the government spent 1.35 trillion rubles ($43.9 billion) more than it collected, the Finance Ministry reported Oct. 9.

Russia needs to modernize the economy and reduce reliance on oil and gas exports, to protect it against financial crises, Medvedev said. This may take as long as 15 years, he said.

“That is a perfectly plausible time frame in which to create a new economy, an economy that will be competitive with other major world economies,” Medvedev said.

“Once a significant portion of our revenue is generated by something other than energy exports, let’s say at least 30 or 40 percent of it, then we would already be living in a different economy and in a different country.”

Russia should pursue energy efficiency, including creation of new fuels and energy saving, develop nuclear power, information infrastructure, and produce its own medicines, the president said.

“Everything was okay as long as prices for energy and raw materials were high,” Medvedev said. “Then those prices fell. Our economy was hit hard. Our citizens were hit hard.”

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

Last Updated: October 11, 2009 10:33 EDT